China cancels deal to buy Thai rice due to graft probe

China has cancelled a deal to buy 1.2 million tonnes of Thai rice after Thailand's anti-corruption agency launched investigations into a state rice-buying scheme, the Thai commerce minister said on Tuesday.

The cancellation will add to the pressure on Thailand's government, which is struggling to secure funds for the rice scheme at a time when farmers who have not been paid are protesting in the provinces.

"China lacks confidence to do business with us after the National Anti-Corruption Commission started investigations into the transparency of rice deals between Thailand and China," Niwatthamrong Bunsongphaisan told reporters.

The deal between Thailand and Chinese state enterprise Beidahuang was signed on Nov. 20, for delivery starting in December. The shipment was delayed, however, after Prime Minister Yingluck Shinawatra dissolved parliament in December.

Niwatthamrong said the government would open a tender to sell 400,000 tonnes of rice from its stocks next week. Industry experts estimate those stocks could be about 15 million tonnes.

The government is desperate to get funds for the scheme because some farmers who have sold grain to the state have been waiting for months for their money.

The World Bank has estimated annual losses of 200 billion baht ($6 billion) since it was introduced in 2011. The government has struggled to sell the rice because of its high price at a time when global demand is thin.

Opponents of the government are angry that taxpayers are footing the bill for a programme they call tantamount to vote-buying.

Thin Demand

"The tender will be held next week and we expect to get around 10 billion baht to pay farmers," Niwatthamrong said.

That compares with the 130 billion baht it needs to pay up to a million farmers.

Traders and industry officials are not sure the tender will generate much interest, given the likely cost and thin demand at the moment.

The Chinese cancellation is the latest in a series of setbacks for Yingluck, who campaigned on the rice scheme to win support in the vote-rich north and northeast, where many households live off income from rice farming.

Her government has faced three months of at times violent protests by a political movement trying to oust her and an election held on Sunday to try to defuse the crisis has failed to resolve anything.

It could be months before the official results of the disrupted poll are known, leaving her in charge on a caretaker basis with no authority to make budget or spending decisions.

The government's efforts to secure loans from banks to rescue the scheme have been unsuccessful. About 500 employees of state-owned Krung Thai Bank held a demonstration on Tuesday urging the bank not to give the government a loan. ($1 = 32.9450 Thai baht)